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The Life Cycle and Tax Advantages of Oil & Gas Exploration and Investment Projects (WWXploration)

Updated on February 15, 2010

WWXploration is an independent oil and gas company based in Houston. The team at WWXploration has over 100 years of experience in the oil fields of the Southwest, which gives the leadership team of the company, collectively, a strong foundation of understanding for what is necessary to produce a successful oil and gas exploration and drilling project.

That is why, when we set out to provide an overview of oil and gas investing, we went to our friends at WWX for advice.

Many people are interested in getting involved in oil and gas on either the production side or the investment side. However, most people do not understand the process by which a seemingly docile piece of land ultimately becomes an energy and ROI juggernaut.

The following five simple steps, as outlined on the official website for WWXploration and used with permission, identify the typical process flowchart in the lifecycle of an oil and gas drilling and investment project.

1. Selection - Governed by major field history and direct offsets of PUD development opportunities with new technology and 3-D seismic to identify major unproduced reserves and multiple sand packages.

2. Risk Analysis – Identify the potential size of the reservoir and balance that with a risk/return analysis.

3. Funding – WWXploration, like many independent oil and gas companies, participates with industry partners, institutional investors, and individual partner.

4. Drilling – WWXploration works with qualified drilling companies and provides onsite supervision that includes daily safety meetings.

5. Distribution – A 30-day distribution of funds is optimal.

The final step, distribution of funds, is obviously the most anticipated for everyone involved. One of the primary reasons for this is that every person involved with an oil and gas exploration and drilling project is only accepting the inherent risk because of the possibility for a healthy return.

It is important to note that while there is risk in any investment situation, there are some tax advantages of investing in oil and gas that reduce some of this risk:

  • The Tax Reform Act of 1986 exempts oil and gas working interests from being classified as “Passive Income”.
  • 60-85% of an oil and gas investment are known as “intangible drilling costs” and are written off ordinary income in first year. The other 15-40% constitutes “tangible drilling costs” and are depreciated over a 5-year period using ACRS.
  • For a dry hole, 100% of all dollars invested are written off as a loss against ordinary income in first year.

The last point is an important one for anyone involved in an oil and gas investment project, as it helps to lessen the blow of drilling a dry hole.

As the saying there goes, “there is more than one way to skin a cat” and there are as many different specific oil and gas exploration and drilling strategies as there are independent oil and gas companies. The process used by a company that you would want to invest in combines the best practices in the industry with emerging technologies and a leadership team that understands each step of the oil and gas life cycle described above.

Any investor serious about putting their money in a position to generate significant returns should consider an oil and gas investment. Such a move could potentially be life changing, and there are some nice safeguards in place to lessen the risk as much as possible.

About Our Source: WWXploration

WWXploration is a Houston, Texas based independent oil and gas company that was formed to take advantage of the above average returns associated with oil and gas exploration. Our experienced management team (with over 100 years of combined industry experience) is dedicated to delivering above average drilling prospects and results that are consistent with the Company and our partner's investment objectives.

WWxploration makes significant investments in oil and gas exploration and also offers experienced and sophisticated "qualified accredited investors" the opportunity to invest with a partner that has a proven track record of successful oil and gas investment and exploration activities.


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